The defender has secured a permanent move away from Valencia after impressing for the Rossoneri on loan last season
The France defender arrived at San Siro on loan in January and had expressed his desire to remain with the Rossoneri after making 22 appearances for the club in the second half of last season.
Milan and Valencia had been in protracted discussions over the transfer before the La Liga outfit finally accepted a fee believed to be in the region of €4.25 million.
The Serie A giants issued a statement on Saturday confirming the acquisition of the 28-year-old centre-back.
"AC Milan announces that it has acquired outright Adil Rami from Valencia CF," the club wrote on their official website.
"Rami has signed a contract until 30 June 2017."
Rami joined Valencia in the summer of 2011 from Lille, where he won Ligue 1 and a Coupe de France title, going on to score eight times in 93 games.
The Frenchman joins Jeremy Menez, Alex, Michelangelo Albertazzi and Michael Agazzi as Filippo Inzaghi's signing so far this summer.